London office repricing: where are we in the cycle?

London office repricing is advanced rather than complete. Prime, energy-efficient buildings with strong locations and secure income appear closest to the stabilisation and early-recovery phase, while secondary offices with weak amenities, short leases or substantial capital expenditure requirements remain exposed to further price discovery.

TL;DR

• Higher interest rates have raised required returns and reduced office capital values from their previous cycle highs.
• London is no longer experiencing one uniform office cycle: prime and secondary assets are diverging.
• Leasing demand is concentrating in well-located, sustainable buildings with strong amenities.
• Refinancing, retrofit costs and lease events will continue to force selective repricing.
• Investors should underwrite asset-level cash flow and capital expenditure rather than rely on a rapid market-wide yield compression.

Where London office repricing stands

The London office market has moved beyond the first phase of repricing, when higher government bond yields and the Bank of England base rate rapidly reset investors’ required returns. It is now in a more discriminating phase in which occupational quality, financing structure and building obsolescence matter as much as the headline investment yield.

That distinction is important. A prime office with modern services, credible environmental performance, attractive public areas and access to transport can command stronger tenant demand than an older building nearby. The two properties may share a postcode, but they no longer represent the same investment proposition.

Published market evidence from RICS, CBRE, JLL, Savills, Knight Frank and Colliers has consistently pointed to polarisation: occupiers are prioritising quality even as they scrutinise their total space requirements. That creates rental resilience for a limited supply of best-in-class buildings while increasing void, incentive and capital-expenditure risk elsewhere.

The market can therefore be placed between late correction and early stabilisation, but only at aggregate level. Individual assets may be at very different points in the cycle.

| Market segment | Indicative cycle position | Main support | Principal risk | |—|—|—|—| | Prime West End | Stabilisation to selective recovery | Scarcity, affluent occupier base, constrained development | Aggressive pricing or short income | | Prime City and core fringe | Stabilisation | Institutional liquidity and demand for high-quality space | Development pipeline and financial-sector concentration | | Refurbished Grade A | Asset-specific recovery | Lower entry cost than new-build space | Execution, leasing and cost overruns | | Secondary but usable offices | Continued price discovery | Potential income and change-of-use optionality | Voids, incentives and future compliance costs | | Obsolete or stranded buildings | Restructuring phase | Alternative-use value where planning permits | Retrofit viability, financing and planning risk |

These classifications are directional rather than valuation advice. Building quality, micro-location, lease profile, debt and purchase basis can shift any asset into a different category.

How the correction developed

London offices entered the present cycle after an extended period of low interest rates. When inflation accelerated and the Bank of England tightened monetary policy, the relative attractiveness of property income changed. Buyers required higher yields, lenders became more conservative and debt costs increased.

The repricing mechanism was straightforward:

1. The risk-free rate increased.
2. The cost and availability of debt deteriorated.
3. Required property returns rose.
4. Investment yields moved outward.
5. Capital values fell unless rental growth offset the yield movement.

The adjustment was complicated by structural changes in office use. Hybrid working reduced the amount of space some organisations required, but it also increased their focus on buildings capable of attracting employees. Consequently, weaker aggregate space demand did not translate into uniformly weaker demand for every office.

Cycle timeline

• 2020 → Pandemic restrictions disrupted office occupation and accelerated remote-working adoption.
• 2021 → Leasing recovered unevenly as businesses reassessed location, density and amenity requirements.
• 2022 → Rapid monetary tightening initiated a material reset in financing costs and investment pricing.
• 2023 → Transaction volumes remained subdued, limiting comparable evidence and widening buyer-seller expectations.
• 2024 → Greater clarity on interest-rate direction supported selective liquidity, although refinancing and obsolescence risks persisted.
• 2025–2026 → The market shifted towards asset-specific stabilisation rather than a uniform rebound, with quality and credible business plans determining liquidity.

HM Land Registry is valuable for long-term property-market evidence, but commercial office pricing is more commonly assessed through transaction databases, valuation evidence and research from RICS and major commercial-property advisers. Thin transaction volumes mean that reported valuation movements can lag the price at which investors are genuinely willing to trade.

Prime versus secondary offices

The phrase “flight to quality” can obscure the economics. Occupiers are not merely choosing newer buildings; they are purchasing operational reliability, employee appeal, energy performance, transport access and reduced reputational risk. Investors, in turn, are assigning greater value to assets that can preserve occupancy without disproportionate incentives or capital expenditure.

> Prime vs secondary > > – Prime: deeper buyer pool; secondary: restricted liquidity. > – Prime: stronger rental tension where supply is scarce; secondary: greater incentive and void risk. > – Prime: modern systems and clearer environmental pathway; secondary: uncertain retrofit cost and disruption. > – Prime: lower perceived execution risk; secondary: returns depend more heavily on active asset management. > – Prime: lower initial yield is possible; secondary: higher headline yield may conceal substantial future expenditure.

A secondary building is not necessarily a poor investment. Repricing can create an attractive basis where an investor has the expertise and capital to refurbish, re-lease or reposition it. The danger lies in treating the initial yield as distributable income without deducting incentives, void periods, finance costs, service-charge shortfalls and the capital required to maintain competitiveness.

The relevant measure is therefore the post-capex, risk-adjusted return. A nominally high-yielding office can deliver a low or negative return if its tenancy expires before the business plan is funded or executed.

What could mark the bottom of the cycle?

No single indicator identifies the bottom in real time. A durable turning point generally becomes visible through several related developments rather than one change in the Bank of England base rate.

Indicators to monitor

• Transaction evidence: comparable assets begin trading without repeated price reductions.
• Bid depth: more credible buyers compete for appropriately priced buildings.
• Yield stability: prime yields stop moving outward across consecutive reporting periods.
• Debt availability: lenders offer workable leverage and interest cover for a broader range of assets.
• Leasing velocity: occupiers commit earlier and reduce the incentives required for high-quality space.
• Development discipline: limited new supply supports rents without encouraging an excessive construction response.
• Refinancing outcomes: maturities are resolved through extensions, equity injections or orderly sales rather than distress.

A lower base rate can support sentiment and reduce floating-rate debt costs, but it does not automatically restore former valuations. Long-term gilt yields, swap rates, lender margins and asset-specific risk all influence pricing. An obsolete building can continue losing value even while monetary policy eases.

RICS sentiment surveys and research from Savills, JLL, CBRE, Knight Frank and Colliers should be read alongside actual transactions. Rightmove and Zoopla are useful residential-market platforms, while London office underwriting depends more on commercial leasing, valuation and capital-markets evidence.

Refinancing and capital expenditure remain the key tests

The next stage of the cycle is likely to be shaped by balance sheets. Some owners financed assets against lower yields and cheaper debt. When those loans mature, current valuations and interest-cover requirements may support less leverage, creating an equity gap.

Assets with near-term lease expiries face a second challenge. Owners may need to fund refurbishment and leasing costs at the same time as they refinance. Where the sponsor cannot provide additional equity, a sale, recapitalisation or lender-led process may follow.

What to check before acquiring a repriced office

1. Rebuild the net operating income. Test contracted rent, incentives, irrecoverable costs and realistic void assumptions.
2. Map every lease event. Identify breaks, expiries, rent reviews, tenant covenants and concentration risk.
3. Commission technical due diligence. Price mechanical, electrical, façade, lift and fire-safety works rather than applying a generic allowance.
4. Assess environmental resilience. Review present performance and the cost, timing and disruption associated with improvement.
5. Stress-test refinancing. Model higher lender margins, lower loan-to-value ratios and stricter interest-cover requirements.
6. Test occupational demand. Use micro-location leasing evidence, not broad London averages.
7. Examine alternative uses. Residential, hotel, life-sciences or mixed-use conversion may add optionality, but planning and physical constraints can remove it.
8. Define the exit buyer. Determine whether the stabilised asset would appeal to institutions, private capital, owner-occupiers or developers.

The Financial Conduct Authority regulates relevant financial activities, but direct commercial-property investment itself involves legal, tax and regulatory questions that require specialist advice. Investors should also consult gov.uk and the relevant planning authority on tax, building and planning requirements.

What recovery may look like

A recovery is unlikely to recreate the broad, leverage-supported upswing of the previous low-rate era. The more plausible sequence is a segmented recovery in which liquidity returns first to secure, high-quality income and then selectively to refurbishment opportunities.

| Recovery route | Likely beneficiaries | What must go right | |—|—|—| | Income-led stabilisation | Long-let prime assets | Tenant covenant and rent remain secure | | Rental-growth recovery | Best-in-class buildings in supply-constrained submarkets | Occupier demand exceeds suitable availability | | Yield-compression recovery | Liquid prime assets | Financing conditions and investor confidence improve | | Repositioning return | Well-bought secondary stock | Capex, planning, programme and leasing are controlled | | Alternative-use value | Structurally obsolete offices | Conversion is physically and legally viable |

International capital may play a material role. Family offices and GCC investors can often accept longer holding periods than highly leveraged buyers, while institutional investors may return when valuation evidence, sustainability credentials and lot sizes meet their mandates. Sterling exposure, tax structure, governance and local operating capacity remain central to any cross-border allocation.

London also competes with other UK strategies. Manchester, Birmingham, Leeds, Liverpool, Sheffield and Nottingham may offer different income and pricing dynamics, while residential Build-to-Rent, HMOs and PBSA provide alternative routes to UK property exposure. Those sectors are not direct substitutes for central London offices, but they compete for capital at portfolio level.

McGardens’ view

McGardens Estate (MCG) is a UK real estate investment and management firm advising family offices, GCC and overseas private capital and institutional investors, and managing UK rental portfolios for overseas landlords.

MCG’s assessment is that London office repricing has passed the stage in which a broad market call is sufficient. The next returns will be determined primarily by basis, building quality, capital structure and execution. Prime assets can stabilise before economic conditions feel uniformly supportive because scarcity and occupier demand provide a floor. Weak secondary assets can continue repricing after headline indices turn positive because their economic depreciation remains unresolved.

For family offices, the opportunity may lie in patient capital that can purchase without relying on aggressive leverage and can fund a multi-year repositioning plan. That advantage disappears if governance is weak or if the investment case depends on optimistic exit yields.

For institutional capital, the central question is whether a building offers durable income or merely appears inexpensive relative to an old valuation. A credible acquisition case should survive flat rents, slower leasing, higher capex and an exit yield no tighter than the entry assumption.

The market is therefore investable, but not yet forgiving. Investors should expect a barbell of opportunities: scarce prime income on one side and deeply repriced, operationally intensive assets on the other. Undifferentiated secondary stock between those categories may offer the least attractive risk-adjusted return.

Key takeaways

• London office repricing is advanced, but there is no single market-wide bottom.
• Prime, sustainable and amenity-rich buildings are best placed to stabilise first.
• Secondary values must reflect both income risk and the full cost of avoiding obsolescence.
• Refinancing and lease events will continue producing selective acquisition opportunities.
• Underwriting should focus on post-capex cash flow, conservative debt and a clearly identified exit market.

FAQ

Have London office values reached the bottom?

London office values have not reached one universal bottom. Prime assets with secure income and strong environmental credentials appear closer to stabilisation, while obsolete or capital-intensive buildings may require further repricing. Transaction evidence, bid depth and refinancing outcomes provide better signals than a single valuation index or interest-rate decision.

Will lower Bank of England interest rates raise office values?

Lower Bank of England rates can support office values, but they do not guarantee a recovery. Property pricing also depends on gilt yields, swap rates, lender margins, rental prospects and building-specific risk. Prime assets may benefit from improved liquidity, whereas secondary buildings can continue declining if required retrofit expenditure or vacancy overwhelms the financing benefit.

Are secondary London offices now good value?

Secondary London offices can offer value only where the purchase price fully reflects execution risk. Investors should deduct realistic refurbishment, incentives, void costs, finance and professional fees before judging the return. A high headline yield is not sufficient if the building cannot attract occupiers or meet future operational and environmental expectations.

Which London office assets are most likely to recover first?

Prime offices in strong micro-locations are most likely to recover first. Buildings with modern systems, efficient floorplates, amenities, transport access, credible sustainability performance and limited nearby competition should attract the deepest occupier and investor demand. Secure lease income can accelerate stabilisation, although an excessive entry price can still undermine returns.

What should overseas investors examine before buying?

Overseas investors should examine tax structure, sterling exposure, financing, governance and local asset-management capacity before buying. They must also test leases, tenant covenants, capital expenditure, planning constraints and exit liquidity. A Ltd company or other holding structure may have tax and administrative consequences, while SDLT and any applicable surcharge require current professional advice.

Is London office investment suitable for family offices?

London office investment can suit family offices with patient capital and strong governance. Their longer holding periods may support complex refurbishments or recapitalisations, but illiquidity, tenant concentration and substantial capital calls must be accepted. The investment should be assessed against alternatives including Build-to-Rent, PBSA and regional UK property rather than viewed in isolation.